Question

Joanne has just completed high school and is trying to determine whether to go to junior college for two years or go directly to work. her objective is to maximize the savings she will have in the bank five years from now. if she goes directly to work, she will earn $19,500 per year for each of the next five years. if she goes to junior college, for each of the next two years she will earn nothing—indeed, she will have to borrow $6,000 each year to cover tuition and books. this loan must be repaid in full three years after graduation. if she graduates from junior college, in each of the subsequent three years, her wages will be $37,500 per year. joanne's total living expenses and taxes, excluding tuition and books, equal $15,000 per year.

Answer 1

If Joanne’s objective is to maximize her five year savings her best choice is to attend a junior college. She will save $3,000 more by attending junior college at the end of five years.

If Joanne decides to enter the work force directly out of high school she will earn a total of $97,500 ($19,500 per year for 5 years). After paying her living expenses $75,000 ($15,000 per year for 5 years), she will have a savings of $22,500.

If Joanne attends a junior college she will work for three years and earn $112,500 ($37,500 per year for 3 years). She will pay expenses of $12,000 ($6,000 per year for 2 years) for her books and $75,000 for her living expenses. $112,500 - $12,000 - $75,000 = $25,5000